POLYEVER HOLDINGS LTD v. SAVILLS (HONG KONG) LTD

HCA 1039/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1039 OF 2010

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D E C I S I O N

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1.  There are 2 applications before the court. The first in time (4 June 2014) is an application by the plaintiff for leave to accept the defendant’s sanctioned payment in the sum of HK$3,574,448.18 made on 25 September 2013 (“S/P”) pursuant to O 22, r 15(2)(b)(ii). In response to that application, on 10 June 2014 the defendant took out a summons for leave to withdraw the S/P.

Background

2.  The background to this litigation has been helpfully set out in the Reasons for Decision of DHCJ Lok dated 18 June 2014 (“Decision”), paras 3 to 16.  The Decision concerned an application by the plaintiff to re-amend the statement of claim by reformulating its claim for damages.  Leave was given by the learned Deputy Judge for the application but with the plaintiff bearing the costs of and occasioned by the application on indemnity basis due to the lateness of the same.  A good deal of the arguments ventilated in this hearing concern the re-amendment of the plaintiff’s case.  

3.  The relevant background facts may be summarised as follows.  On 17 August 2009, the plaintiff appointed the defendant to act as its real estate agent in the purchase of a commercial property at Queen’s Road Central, Hong Kong (“Property”).  In this action, the plaintiff alleges that the defendant had breached its duty of care to it by misrepresenting to it (recklessly or negligently) that the Property was not subject to government rent, on which representation the plaintiff allegedly relied when purchasing the Property, which resulted in loss to the plaintiff.  There was a counterclaim by the defendant for its unpaid commission in the transaction.  It was settled in October 2013 and the counterclaim had been deleted in the defendant’s pleading.

4.  The plaintiff originally claimed that, relying on the alleged misrepresentation that the Property was not subject to government rent and in order to generate a desired minimum investment yield of 4.278% per annum, it agreed to purchase the Property for HK$1,030,000,000 on 20 August 2009.  A matter of days before completion, the plaintiff allegedly discovered that the Property was in fact subject to government rent, which would be payable by it after it acquired the Property, and in order to maintain the desired yield, the plaintiff would have paid a reduced purchase price of HK$998,372,675 (difference of HK$31,627,325) for the Property.  The original damages claim was for this alleged overpayment.  

5.  Apart from disputing liability and causation, the defendant contended in respect of the original damages claim that, even if there was a misrepresentation which the plaintiff relied upon when purchasing the Property (both elements are denied), it did not overpay for it. The plaintiff would not have been able to obtain a reduction of HK$30 million in the purchase price. 

6.  The parties subsequently adduced valuation evidence in this regard and the experts from both sides had agreed in their joint report dated 21 November 2013 that the Property was worth about HK$1,090,000,000, ie, HK$60 million more than what the plaintiff had paid. However, prior to the S/P (September 2013), it was clear in May 2013 from the reports produced by both sides that what was paid by the plaintiff for the Property was below the market price.

7.  The trial of this action was set down in June 2013 to take place on 8 July 2014 with 6 days reserved.

8.  On 26 March 2014, the plaintiff issued a summons to file and serve a Re-Amended Statement of Claim and 3 supplemental witness statements in support of the proposed amendments.  The key amendments were (i) if the plaintiff had known the true position with regard to government rent, and if an offer of HK$998 million had not been accepted by the vendor of the Property, it would not have proceeded with the transaction and (ii) the proper measure of loss is the capitalised amount of the government rent over the life of the lease that the plaintiff has been saddled with as a result of proceeding with the transaction (HK$30,500,000). 

9.  Despite the resistance of the defendant, at the hearing on 16 May 2014, the court granted leave to the plaintiff to amend its pleading but limited to the reformulation of the damages claim (amendment (ii) identified in the preceding paragraph).

10.  The plaintiff filed and served its Re-Amended Statement of Claim on 19 May 2014.  On 3 June 2014, an Amended Defence was filed and served by the defendant.  No Amended Reply has been filed.

11.  In its summons for leave to accept the S/P, the plaintiff concedes that the costs of this action incurred 28 days after the S/P was made are to be paid by it on indemnity basis in favour of the defendant.

The opposing grounds

12.  There is no argument that these applications are the 2 sides of the same coin.  The grounds advanced in support of the plaintiff’s application are as follows:

(i) The plaintiff’s counsel has recently advised that there is only a marginal advantage in proceeding with the trial instead of accepting the S/P;

(ii) The plaintiff is mindful of the vicissitudes of litigation; and

(iii) The plaintiff wishes to save further costs and the time of the court and the parties.

13.  There are 2 grounds advanced by the defendant in support of its withdrawal application, namely, (i) change of circumstances arising from the latest amendment to the plaintiff’s pleading and (ii) the lateness of the plaintiff’s application.

The law

14.  The sanctioned payment regime can be found in the provisions of O 22.  There is no argument that the object of O 22 is to promote early settlements, save costs, achieving a fair distribution of the court’s scarce resources, and avoid the uncertainties of litigation : see Rai v Pacific Construction (HK) Co Ltd [2011] 3 HKLRD 469, §32. 

15.  Pursuant to O 22, r 15(1), a plaintiff may accept a sanctioned payment without requiring the leave of the court if he does so not later than 28 days after the payment was made.  Thereafter, the payment may only be accepted without the leave of the court if the parties agree on the liability for costs (r 15(2)(b)(i)).  In the absence of such agreement, the payment may only be accepted with the leave of the court (r 15(2)(b)(ii)).  It is common ground that the court’s discretion in granting such leave is unfettered. 

16.  It appears that there are very few authorities on how the court’s discretion is to be exercised.  I have been referred to an English authority of Cumper v Pothecary [1941] 2 KB 58.  It was decided before the reform in England by the Civil Procedure Rules (“CPR”).  Mr Yim, who appeared for the plaintiff, informed the court that the only post-CPR authority on this area is Capital Bank plc v Strickland [2005] 1 WLR 3914.  I have been referred by Mr Chan, who appeared for the defendant, to one Hong Kong authority – Rai, supra, in which Cumper was referred to. 

17.  The principles which can be distilled from the above 3 authorities are as follows:

(i) The discretion of the court is unfettered (Rai, §31);

(ii) Such discretion is be exercised judicially (Cumper, pg 67);

(iii) The main criterion is whether there has been a change of circumstances as would render it unjust to allow the offeree to benefit from the sanctioned offer/payment (I see no reason to treat a sanctioned offer and a sanctioned payment differently.  Indeed, they received parity of treatment under O 22.) (Rai, §33).  For instance, the discovery of further evidence, which puts a wholly different complexion on the case, or a change in the legal outlook brought about by new judicial decision (Cumper, pg 70);

(iv) Delay in making the application is a relevant consideration (Rai, §34; Capital Bank, §15);

(v) The substantiality of the offer to accept is a relevant consideration (In Capital Bank, the defendant made a late application to accept the claimant’s CPR Part 36 offer to settle for a certain sum.  However, the defendant’s acceptance was not backed-up by any security for payment.) (Capital Bank, §15);

(vi) The conduct of the applicant is a relevant consideration (Capital Bank, §19);

(vii) The court will not, in the interlocutory application, conduct a mini-trial of the issues raised (Rai, §37);

(viii) After taking into account all the relevant factors, the court will be guided by the overriding consideration to do justice between the parties (Rai, §38).

18.  In addition, I would like to add that the reason(s) for the late application to accept a sanctioned offer/payment is also a relevant consideration.  Normally, a court would not exercise its discretion without good or sufficient reason.  To begin with, it is normally necessary to explain to the court why an application has to be made to invoke its discretion.  Once the explanation is before the court, it must follow that it will be scrutinised and evaluated.  If the explanation is frivolous, the court cannot be expected to entertain the application. Further, generally, the court will look for more cogent reason in the case of serious delay.

19.  I would also like to add a few words about change of circumstances and delay.  It may be said that the former is the most important factor to be taken into account by the court (see also Capital Bank, §18) because once there is a settlement offer on the table, and provided that the offeree is willing to bear all the costs which have been wasted as a result of the delay in accepting the offer, then barring any change of circumstances he should normally be allowed to accept the same, provided that such acceptance remains consistent with the object of O 22. 

20.  That brings me to the issue of delay.  I believe that delay is an important factor because it can defeat the very object of O 22.  A very late application means that the court’s wishes to encourage settlement and to have its scare resources fairly distributed are defeated.  As I shall explain below, a late application like the present is an unfair drain on the court’s resources. 

Analysis

21.  The grounds advanced by the plaintiff are quite unconvincing.  In his submissions, Mr Yim explained that the real reason for the late application is the change in the appraisal of the merits of the plaintiff’s case brought about by the change of counsel which took place in March 2014.  That explanation is consistent with the application to amend the plaintiff’s pleading made in the same month (see para 8 above).  However, I do not accept that it constitutes a good reason. 

22.  There is no discovery of new evidence or change in the law.  In my view, a change in the evaluation of the merits of a case can rarely be a good reason.  There are 2 grounds for saying so.  Firstly, for obvious reasons it is not a matter which is appropriate for the court scrutinise.  Secondly, lawyers often take different views on the merits of a case.  The achievement of the object of O 22 cannot depend on who the parties have chosen as their legal advisors. 

23.  I should point out that in Rai, there was also a change in the assessment of the strength of the plaintiffs’ case but that was attributable to the fact that the sanctioned offer was made without the benefit of counsel’s advice.  Such service was only available to the plaintiffs later when counsel was assigned under the legal aid granted to them.  The court accepted that it constituted a material change in circumstance (see Rai, §36).  This case is in a different category.    

24.  In respect of the change of circumstances alleged in this case, it is said by the defendant that the latest amendment to the statement of claim has changed a bad case to a hopeless one, and that it should therefore be allowed to retract the settlement offer (withdraw the sanctioned payment).  For the purpose of the argument, this court has been taken by the parties to various authorities on the proper measure of damages in negligence claims against surveyors and solicitors. 

25.  There is a question of principle as to whether the court ought to, in this application, engage in an exercise to evaluate whether the reformulated damages claim is sustainable (see para 17(vii) above).  I believe that it is unavoidable that the court must have certain degree of appreciation of the quality of the augments so as to allow it to exercise its discretion in determining the application. Plainly, the court is not required to form a definitive view but only required to have sufficient appreciation of the quality of the arguments to enable it to decide whether the point has been made out for the purpose of the interlocutory application. 

26.  I do not agree with the defendant that the amendment in question demonstrates a hopeless case.  Contrary to its contention, I am of the view that the plaintiff’s damages claim is now on a firmer footing.  For obvious reasons, I should confine myself to a brief explanation for taking such a view.  I have a good deal of difficulty in understanding the previous claim for damages.  It is implicit in that claim that the plaintiff would have been entitled to a discount from the vendor by reason of the obligation to pay government rent.  I cannot see the basis for that proposition.  Indeed, Mr Yim has informed the court that the plaintiff has no evidence in support of the same, and hence the amendment. 

27.  I accept Mr Chan’s submission that the normal measure of damages for a case of the present type is the difference between the price paid and the actual value of the property at the material time (see Jackson & Powell on Professional Liability, 7^th edn, §10-139). However, this is not an inflexible rule (see County Personnel (Employment Agency) Ltd v Alan R Pulver & Co [1987] 1 WLR 916 at 925F-H).

28.  The reformulated damages claim is founded on the capitalised value of the government rent.  Mr Yim has referred this court to Computerstaff Ltd v Ingeldew Brown Bennion & Garrett (1983) 268 EG 906 and Flenley & Leech on Solicitors’ Negligence and Liability, 3^rd edn, §9.67 in support of the same.  I am satisfied that the reformulated claim is not hopeless and that it is an improvement over the superseded version. 

29.  It must follow that I am not satisfied that there is any material change of circumstances.   

30.  As regards the issue of delay, this is a significantly more powerful objection to the plaintiff’s application.  I consider this a very late application and one which has caused serious imposition to the court.  This application was taken out just over 1 month before the start of the trial.  The reality, which is accepted by Mr Yim, is that this application would not normally be heard, let alone determined, before the trial. 

31.  The court has gone to some length in accommodating this application by giving it an expedited hearing.  This of course means an unfair distribution of the court’s resources.  To say the least, the plaintiff has jumped the queue.  Further, there is a burden on the court to determine this application before the commencement of the trial.  In short, application of this type can constitute a considerable burden on the court and hence unfair to the other court users.  It serves to destroy the very object of O 22. 

32.  One can easily understand the discontent on the part of the defendant in respect of such a late application.  Most, if not all, of the trial preparation has been done by now.  I have been informed by Mr Chan that brief has already been delivered to senior counsel instructed to represent the defendant at the trial. Notwithstanding the offer by the plaintiff to pay for all the wasted costs, the defendant may take the view that there is little to be gained by settling at this late stage.  However, it has also been said by Mr Chan that the defendant may still settle this action with the plaintiff but it should not be shackled by the S/P.  The defendant has not filed any evidence in this application to explain why it wants to withdraw the S/P.  Mr Chan has explained to the court that the absence of evidence is attributable to the need to deal with this application expeditiously.  Mr Yim has not taken any point in this regard.

33.  For completeness, Mr Yim has suggested that the court should also consider the delay on the part of the defendant in withdrawing the S/P.  I disagree.  In an adversarial system, there is no reason for the defendant to take the initiative to give up the advantage it has in having made a sanctioned payment which has not been accepted.

Conclusions

34.  In the premises, bearing in mind in particular the lateness of the application and the lack of good reason to justify the same, I dismiss this application.

35.  It should follow that the defendant’s application to withdraw the money paid into court is allowed.  I make an order nisi that the costs of both applications be borne by the plaintiff with certificate for counsel.

36.  Last but not least, I am grateful to both counsel for their assistance in these matters.

(Anthony Chan) Judge of the Court of First Instance High Court